Rent-A-Center, Inc., (NASDAQ:RCII) is a rent to own company headquartered in Plano, Texas that provides every day essentials to individuals with less than perfect credit. The company was founded in 1986, and today offers durable goods such as furniture, appliances, computers, and other long lasting products for the home sold on a rent-for-use or rent-to-own basis. According to the Association of Progressive Rental Organizations (The Official Voice of the Rent to Own Industry), Rent-A-Center is in an industry that has approximately 8,600 stores in the United States and Canada. This industry has approximately 4.1 million households renting-to-own at any time and growing with over 7 billion dollars in revenue as of 2009, a jump of more than 2.5 billion over a ten year period .
Rent-A-Center boasts having nearly 3400 locations, of which 23 are outside of the United States . Most of the recent growth of the company has been through consolidation of the industry, but the company has begun to look into new markets outside North America to expand in the near future. There are two main players with over 1000 stores, which are operated by Aaron’s Sales and Lease Ownership and Rent-A-Center respectively. The industry has many players of which most have 50 or fewer stores, and consistently has faced consolidation from major players Aaron’s and Rent-A-Center.
The company has six major operations that support their core values:
The core values of Rent-A-Center include the following:
Rent-A-Center currently is pursuing a growth strategy as they consider investing abroad outside of North America, but has recently faced new competitive forces from renewed brand awareness in RadioShack Corp and the new offerings from Best Buy® with their BuyBack Program. These new competitors into the durable goods for rent sector of the economy may change the outlook for Rent-A-Center.
The threat of the entry of new competitors
The profitability of the rental sector has begun to entice other non-traditional companies to begin to offer similar services. Currently the downturn in the economy has forced individuals as well as businesses reconsider purchasing products outright. 75% of the customers within this market have a rental period of less than four months, and only 8% complete rental agreements to fruition; while this number seems low approximately 17% of customers pay off the product early. This allows for relatively low barriers to entry to occur as it is possible to have an investment turn a sizable profit from multiple customers before it is purchased outright.
Rent-A-Center has real potential to continue to be a market leader, but need to create brand loyalty in a market that has a limited customer base. One way that Rent-A-Center can gain a competitive advantage over their competition is by advertising. Recently, Rent-A-Center has used sports figures such as Troy Aikman and Hulk Hogan to bring recognition to the company. This builds an opinion of the company in the mind of the public as it brings together well known celebrities and their product together and their solution to getting the latest and greatest products for the home at a cost without taking on physical debt through credit cards. The company has made a point to focus not on the credit worthiness of their potential customers but more on providing a product today, pay later as you can. This is a powerful way that Rent-A-Center can gain an advantage against other firms in their sector. Recently, in doing so, they have created an environment where the company appears to care about the long term welfare of their customers, claiming that they are “the new way to shop in the new economy”.
The intensity of competitive rivalry
For Rent-A-Center the intensity of competitive Rivalry could be one of the major determinate of competitiveness of the industry they are in. One possible way for Rent-A-Center to obtain a competitive advantage is through innovation. By Rent-A-Center becoming more financially flexible in the industry, this allows them to charge higher prices over the period of rental, gaining a higher profit in return. “Total revenues for the quarter increased to $677.09 million from $672.91 million in the same period last year” .
They can do this by looking at the current products they offer and look at the future of the consumers that use them to try and pitch them something that will spark interest. An increase in people using the Internet has lead for companies to get away from the brick-and-mortar and go to the click-and-mortar aspect of the business to reduce costs such as overhead costs. One way that Rent-A-Center can gain a competitive advantage over their competition is by advertising. Recently, Rent-A-Center has used sports figures such as Magic Johnson to help them promote their company. This gives the public a positive view on the company because of the strong representation and background of the celebrity figure. A way that Rent-A-Center can gain an advantage against other firms in their sector is by having a powerful competitive strategy.
The threat of substitute products or services
A major concern for this company is the threat of substitute products or services. Rent-A-Center makes using their service customer oriented which helps entice customers to keep coming back. “Re-rent the same or comparable item at anytime, and we'll let you pick up where you left off on your payments” .
This policy implores Rent-A-Center to charge a price for their product that is comparatively lower than their competitors while still offering a price that allows them to make a profit. But to keep customers coming back, Rent-A-Center has an offering of products that is pivotal to their recent success. By building the ability to return to the store at a later date and continue a previous rental period without starting over is a significant advantage of RAC over their competitors. This in concert with the ability to offer customers the flexibility of when to pay has created high switching costs and turnover to their competitors.
The bargaining power of customers
Rent-A-Center is one of few rent-to-own businesses that offer a variation of customers with high quality products. Rent-A-Center offer’s products that their customer base cannot afford therefore having an absolute advantage over the customer to decide what their willing to sell. They have an absolute advantage because a single customer can go elsewhere but few rental alternatives offer the quality that Rent-A-Center provides. The only true bargaining power a customer has is to go elsewhere if they are not willing to pay the terms agreed upon.
The bargaining power of suppliers
Rent-A-Center acquires finished goods from suppliers on a strict purchase basis. After acquiring the product the supplier has no involvement in Rent-A-Center’s business unless there are extending warranties. Suppliers could raise their prices which would reduce the margin for Rent-A-Center but with their 3400 locations they can easily seek other suppliers. Rent-A-Center has a competitive advantage over other competitor’s suppliers and its customers due its cost structure for customers and economy of scale related to their large presence in the market.
Rent-A-Center seems to have expertise in advertising their services. By having celebrities support their product on television commercials and other methods of advertisement, RAC is able to reach potential customers who are familiar or acknowledge a celebrity tied to their product. Also, Rent-A-Center places their stores in strategic locations where there is a higher concentration of individuals who would benefit from leasing of durable home goods. After researching on Rent-A-Center’s customer satisfaction, it seems that another one of their strengths are the quality of their customer services to the consumers. “We want your business, and we'll match any competitor's price to prove it” .
Rent-A-Center’s customer based are individuals with lower credit and unable to acquire these products by normal means. By focusing on this demographic, Rent-A-Center limits their customer base. Since Rent-A-Center’s business strategy is to build locations areas of lower income, the company loses the potential business from potential customers who only shop in high end business districts.
With an ever so increasing use of the Internet, this gives Rent-A-Center an opportunity to take a full advantage of it. Using tools such as Twitter and Facebook is a great way to develop advertising ways to promote Rent-A-Center. Another aspect that Rent-A-Center may want to look at is the opportunity of acquiring similar companies to form a strong strategic alliance. By forming a joint venture with another company this gives Rent-A-Center and another company to share capital, human resources, technology, risks and rewards when a new entity is shared. Once Rent-A-Center establishes themselves as a well-developed company this opens up the opportunity for them to consider branching to new market segments that offer higher profits. Lastly, one thing that Rent-A-Center may want to consider is expanding internationally. Going globally with allow for Rent-A-Center to expand on their current amount of stores “3,007 Company-owned stores nationwide and in Canada and Puerto Rico, including 39 retail installment sales stores under the names”. By expanding internationally this opens the doors to global customers that normally buy locally rather than from vendors based only in the U.S. Expanding into foreign markets usually requires minimal up-front investment. With the recent massive increases in credit card rates, consumers may realize that Rent-A-Center is now a viable option for product purchase.
One of the biggest threats when owning a business is the threat of a new competition in your home market. This is a pretty difficult task for any company to hedge against because a company can open up down the road and completely put out a business. This is prevalent in Best Buy’s new business strategy of buying back your products. Best Buy is now buying back your old products which can essentially be viewed as renting a product for a period of time and selling it back to Best Buy for a lesser amount of money. A price war with competitors is another potential threat against Rent-A-Center. This cause’s Rent-A-Center to lower their prices and reduce revenue just to keep their current customers and not force them to switch to a competitor. Lastly, if a new taxation is posed on Rent-A-Center or their distribution channels, this can cause of Rent-A-Center to raise their prices to hedge against the taxation.
When examining Rent-A-Center’s lease-to-own business model, several key financial ratios come to mind. One of the more important financial ratios to consider is return on assets. This examines how efficient management is at using its assets, such as furniture and televisions, to generate a profit.
Rent-A-Center’s annual report offers other important statistics on product turnover and collections. One important statistic to consider is the percentage of RAC’s rental agreements that become past due and enter collections. Collections and repossession of merchandise is a very costly process and is important to keep this occurrence as infrequent as possible. RAC aims to have no more than 6% of rental agreements past due. For fiscal years 2010, 2009, and 2008, the past due percentages were 6.90%, 6.50% and 6.38%, respectively . This shows a positive trend towards RAC’s goal of 6% and will go a long way in RAC’s recent cost cutting efforts. Another important statistic found in RAC’s annual report is product turnover.
High product turnover results in additional costs for RAC but is outweighed by the ‘hidden’ premium they can sell their products for through interest, thus increasing their product margins. By allowing customers to rent and eventually choose to own merchandise, Rent-A-Center enjoys much higher margins on their products, compared to traditional retailers, because they receive revenues from the actual purchase price of the product plus additional rental revenues and interest.
Rent a center has an interesting supply chain model as well as a devotion to the marketing mix, which is a combination of four main ingredients: Place, Promotion, Product, and Price. Rent-A-Center has an interesting way of approaching all of these 4 areas. The locations of Rent-A-Center’s stores (place) are located near to their customer base, low-income families in which those who cannot normally afford higher end consumer products .
The placement of these stores in low income neighborhoods allows for access to luxury products at a pay as you go price with very limited need to promote their service. The system of rent to own can be very attractive to customers that do not have the capital to own these luxury products through purchase and does not need expansive advertising campaigns to keep customers returning, only advertising to get them into the store initially .
The rent to own business model brings quality products to low-income families but a larger cost strung out over time. This method allows Rent-A-Center to have a series of payments that in sum create larger profit margins per item than a regular brick and mortar appliance store.
Promoting this system as luxury in a low-income neighborhood has shown great success, not only in executing the initial sale, but also continued revenue from payments on the equipment as long as the customers have the product in their possession. This rent to own strategy utilizes the maximum amount of revenue that a company can receive for its inventory, mostly because there is not just a single point of sale, instead a longer payment period including interest with potentially multiple customers exercising rental of the same item, creating an exponential return off of its original investment.
The Marketing Mix greatly affects the supply chain. The supply chain must be well coordinated due to the high inventory that Rent-A-Center stores must carry to supply the multitude of products that customers build as their wide array of wants and needs. This is where the promotion comes in to advertise the diversity of the products that Rent-A-Center provides. Rent-A-Center does not do all of this alone though, instead they decided to focus on what makes Rent-A-Center successful and outsources the majority of its supply chain to companies such as ICG Commerce .
Rent-A-Center does not have a core competency in coordinating deliveries of products, hence outsourcing was the proper method and focusing upon the important facets of their business such as the marketing mix. For example, gaining new customers (Promotion), finding the correct demographic and areas to do business (Place), providing quality products that fit its demographics’ needs (Product), and providing an affordable cost structure while making money not only at the point of sale but in the form of ongoing payments (Price).
Human resources involves workers who are in charge of the organization and responsible for implementing strategies and policies that relate to the management of individuals. It is a very important part of a company’s success and ultimately decides how much the company can grow and achieve. Human resource managers seek to achieve this success by arranging the supply of skilled and qualified individuals and the capabilities of the current workforce, with the organizations’ ongoing and future business plans and requirements to maximize return on investment and secure future survival and success.
Rent- A-Center’s human resource senior vice president is Robert Brockman. He was appointed this position in on January 29, 2010. Brockman's responsibilities include supervision of traditional human-resources tasks such as training and development, store and home-office staffing, payroll and benefits, and compensation. He also serves as a member of the corporate strategic team. Rent-A-Center made a good move by hiring Brockman seeing that he has a great deal of experience. Robert Brockman didn’t even specialize in human resources in college. He graduated from Texas A&M with an economics degree. His prior experience includes being vice president of human resources for THORN Americas, Inc, and his most recent job was executive vice president of administration for Cash America. Earlier in his career, Robert Brockman also held senior management positions at Burger King and Taco Bell so you can see he is very qualified and a very important piece of Rent-A-Center’s long term strategy.
In 2005, Becky Crawford was named Vice President of field human resources. Her job is to continually oversee 12 field human resources directors and their teams which have the task of recruiting and retaining the talent necessary to guarantee operational proficiency and excellent customer service at Rent-A-Center. Along with Robert Brockman, she makes sure Rent-A-Center’s human resource operations run smoothly.
In December of 2005, Valtera announced the debut of its first Manager Assessment Portal which was personalized just for Rent-A-Center. The portal is a dual-use evaluation application, which combines manager selection and manager development into one very useful tool. Valtera was a huge help for Rent-A-Center and still is today. In more detail, Valtera’s management assessment portal uses custom evaluation tests to identify and select only the most highly qualified applicants for store manager positions. This tool saves Rent-A-Center a ton of time. Instead of tediously searching through banks of resumes, this tool helps them identify potential qualified employees. This gives the HR department more time to focus on many other important issues while still having confidence that the potential employees they hire will be well qualified. Becky Crawford even said herself that, “Leadership development is extremely important to our continuing success. The new Management Assessment Portal is just one way to invest in our employees for the long term. This strategy works for Rent-A-Center" .